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Middle East: The oil crux

Hydrocarbon Engineering,

The Middle East remains pivotal in the world energy market, with extensive oil reserves giving the region the chief role as swing producer. This contributed to a decline in oil output because of weak global demand. However, in the longer term oil and total liquids production are forecast to rise. Essentially, there is growth and activity in almost all sectors of the Middle East’s energy industry. Domestic demand is growing quickly, allowing local refineries to expand even when export markets are weak, while investments continue to be made in the burgeoning energy industry.

The Middle Eastern oil market is the crux of the global energy industry: thus, examining recent price and demand issues, crude production and the refining sector is key to gleaning a wider understanding of the direction of the industry as a whole. The development and future progress of the Iranian refining industry is a central component of this and can be seen as both a basis on contrast and comparison.

Price, supply and demand

In the Middle East, oil demand has grown strongly. The growth rate often becomes even stronger when oil prices are high, as a result of the increased government oil revenues and often subsidised domestic oil product prices. Iran and Saudi Arabia represent the region’s largest oil markets, with Saudi Arabian oil product demand estimated at 2.7 million bpd in 2010, followed by Iranian demand at approximately 1.6 million bpd.

Middle Eastern refining

For the Middle Eastern Gulf countries, current crude distillation unit (CDU) capacity is approximately 6.9 million bpd, over half of which is located in Saudi Arabia and Iran. Refinery expansion and modernisation programs have been completed in the majority of the Persian Gulf countries, yet there remain many refineries that are small and technically unsophisticated. There is a great deal of interest in improving fuel quality, both for local use and for export markets, resulting in a number of plans and proposals for additional refinery upgrades.


One of the most crucial distinctions between the Iranian oil refining industry and the industries in neighbouring Middle Eastern countries is that Iran’s industry is oriented to meet burgeoning domestic demand. Developing an export oriented refining system is a secondary goal. The oil product market is the largest in the region, with the strongest focus on ‘consumer’ fuels. Demand is approximately 1.6 million bpd, 70% of which is gasoline and middle distillates.

While a great deal of international attention focuses on export oriented refineries and refinery projects in neighbouring countries, Iran is working to expand refining primarily for the domestic market and for import substitution purposes (although this will, in its own way, have a major impact on the international market). Yet despite often being overlooked on the international stage, Iran’s refinery expansion plans are truly extensive and thorough.


The Middle East continues to play an essential role in the global oil market, serving as a key source of supply and swing supply. The local energy markets are growing and high oil prices have contributed to government revenues and spending. The Middle East remains one of the few areas where the refineries remain under construction and planned. The refining industry, led by Saudi Arabia and Iran, has grown enormously, as evidenced by the fact that essentially every country in the Gulf has refinery projects underway.

The full article by Nancy Yamaguchi can be found in the June 2011 issue of Hydrocarbon Engineering.

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